You can establish a Letter of Credit in either Australian dollars or a major foreign currency. Settlement can be at sight or a term up to 180 days. This means you have the flexibility to negotiate payment terms and conditions according to your cash flow requirements.

As soon as you have agreed on terms with your supplier you can lodge your Import L/C application with Arab Bank Australia. As Arab Bank Australia will guarantee payment, security is generally required. Please be sure to discuss security with your Arab Bank Australia Relationship Manager, Trade Finance prior to making a commitment to your supplier. Once your credit application is approved, it will be transmitted to a bank in your supplier’s country.

When the credit is received by your supplier they will be required to present the necessary documentation to their banker, which will then be forwarded to Arab Bank Australia. Payment will be debited to your account when Arab Bank Australia receives the complying documentation, or on the maturity date if you have arranged a term drawing and make payment to the supplier on your behalf.

Australian Banks, in common with banks in many other countries, have adopted the International Chamber of Commerce rules as set out in Publication No. 500 – ICC Uniform Customs and Practice for Documentary Credits. These rules set out the procedures to be followed by all parties concerned, including the liabilities and responsibilities of banks and customers involved with documentary credit transactions. They endeavour to eliminate difficulties (created by differences in banking phraseology and procedures) in different countries by setting out standard practices that banks can apply.

Key Benefits

• Can open up new opportunities to do business with suppliers who have never dealt with you before and provide them with confidence, and without the need to make a judgment on your credit-worthiness.
• You stipulate the payment terms and conditions that suits your needs.
• You specify the documentation that is to accompany each shipment, including any required to clear the goods through customs.
• You nominate the deadlines for shipment.

What about the Exchange Risk?

If your are trading in a foreign currency, fluctuations in the exchange rate mean you can be exposed to exchange risk between the date of your contract and the date your payment is effected.

If you have overseas receivables in the same currency, you may decide that these provide enough of a natural hedge. However, if you do wish to cover your risk, you may want to establish a Forward Exchange Contract (FEC) with Arab Bank Australia. This is a way to reduce your risk and potentially reduce your overall costs. (Refer to section on Forward Exchange Contracts).